Private mortgage lenders are an alternative to banks for those with a bad credit score or low income, but can also be used for those looking for debt consolidation or to borrow money for renovations. Private lenders can offer mortgages even to those with a low credit score or no income, however interest rates on private mortgages are significantly higher than mortgage rates offered by banks.
Ontario is home to the largest number of private mortgage lenders in Canada. In 2014, the total amount of mortgages by private lenders in Ontario was $6 billion. In 2017, this increased by 77% to $10.6 billion. In this three year period, brokerages in Ontario that conducted business with a private mortgage lender increased by 11%.
A private mortgage is one that is not lent out by a financial institution, such as a bank or credit union. Private mortgage lenders can either be corporations set up for the sole purpose of lending out money, or they can be individuals. In the case of individuals, this can be through direct lending to a certain individual or individuals can pool their funds together in a syndicated mortgage to lend out.
In addition to first-lien mortgages, private lenders can also offer second mortgages and third mortgages. Since a second or third mortgage would mean that you would be borrowing even while you already have one or multiple existing mortgages, private lenders generally require you to have a high loan-to-value ratio (LTV).
The lower your LTV, the more equity that you own in your home. Private lenders like to see low LTVs and high levels of equity. It can be difficult to get a private mortgage if your LTV ratio is above 80%. Since you will be putting up your home equity as collateral, private lenders generally accept borrowers with bad credit or low income.
If you are having trouble refinancing or renewing your mortgage due to a bad beacon score, a private mortgage can be used as a temporary financing alternative while you repair your finances. Private mortgages can also be used for other short-term uses, such as for debt consolidation or flipping houses.
With Ontario making up almost half of MIC mortgages in Canada, it is no surprise that private lenders have a large presence in Toronto. In 2019, Government of Ontario estimates show that private lenders have increased their market share by 50% in Toronto in 2019, and now make up 10% of all mortgages in Canada.
|Private Mortgage Lenders in Toronto|
|Tribecca Finance Corporation||Credit Butler|
|Castleton Mortgages||Mortgage Central Canada|
|Harbour Mortgage Corp.||Homebase Canada Inc.|
|Canada Wide Financial||Mortgage Squad|
|Tridac Mortgages||DV Capital Corporation|
|CMB Canada Mortgage Brokers Inc.||Xpert Credit|
|Mortgage Truth||Interfinance Mortgage Corporation|
|Mortgage Associates Ontario||Secure Capital Group|
|Mortgage Company of Canada||The Mortgage Division|
|Cannect Home Financing||Ross Taylor & Associates|
From the City of Ottawa to Kanata, to Nepean and Orleans, private lenders in Ottawa operate throughout the National Capital Region. In a 2017 study by the Bank of Canada, Ottawa-Gatineau had one of the largest numbers of high-ratio mortgages in Canada.
In 2016, 67% of mortgages in Ottawa-Gatineau were low-ratio conventional mortgages, while 33% were high-ratio mortgages. In comparison, only 13% of mortgages in Toronto are high-ratio mortgages. Private lenders generally prefer to lend to those with a sizable equity in their home, which would exclude high-ratio mortgages.
|Private Mortgage Lenders in Ottawa|
|Ottawa-Carleton Mortgage Inc.||MortgageCaptain|
|Westboro Investment Corp.||Jason Anbara Ottawa Mortgages|
|Wadhen Mortgage & Financial Services||Westrock Capital Corp.|
|Ottawa Carleton Mortgage Inc.||The Wilson Team|
|SJC Financial||Wadhen Mortgage & Financial Services|
|Capital Mortgages Kanata||The Mortgage Centre (Mortgage Brokers City Inc.)|
|Smart Debt Mortgages (Chris Allard)||Mortgage Intelligence (Andrew Thake)|
One benefit of private lenders is the ease of access and flexibility that they offer. In a 2019 report, the CMHC found that the Kitchener-Cambridge-Waterloo area has elevated levels of short-term investment activity in properties. 9% of all homes purchased between 2015 and 2018 were sold within two years for the purpose of short-term gains. Of non-local buyers who made these short-term investments, 72% of them were from the Greater Toronto Area (GTA).
Private lenders are an option for those looking to flip houses, but they are also an increasingly popular choice for all homeowners. Some private lenders and brokers in the Kitchener-Waterloo area include:
|Private Mortgage Lenders in Kitchener|
|Presto Mortgages||AKAL Mortgages|
|Woodstreet Mortgage||Mortgage InGenuity Kitchener|
|MortgageKings||The Mortgage Centre Kitchener-Waterloo|
|Mortgage Intelligence (Ben Melick)||Mortgage Intelligence (Jack Russell)|
|Mortgage Intelligence (Jesse Brun)||Dominion Lending Centres (Tracy Valko)|
Located two hours southwest of Toronto, London is an increasingly attractive option for GTA homebuyers looking for more affordable houses. 20% of all homes over $450,000 were purchased by GTA buyers in 2017.
Some private lenders in London and St. Thomas include:
|Private Mortgage Lenders in London and St. Thomas|
|McCallum Mortgages||Casb Management Group Inc.|
|FastMortgages||CIR Mortgage Corporation|
|Real Mortgage Associates (Dani Hanna & Ken Roberts)||Real Mortgage Associates (Justin McCallum)|
|Dominion Lending Centres (Adriaan Driessen)||Bedrock Financial Group (Joe Walsh)|
The cost of a private mortgage will vary from lender to lender, which can be based on your income, credit score, and home equity. Private lenders usually charge a fee based on the amount being lent. This fee is usually around 2%. While a private mortgage will cost more than a conventional mortgage, they are usually only used as short-term temporary financing.
The average price of a home in Toronto was just over $1 million in February 2021. Toronto mortgage rates hovered around 2%, while private mortgage lenders in Toronto have rates of around 5% to 6% for first mortgages. Second and third mortgages have higher rates. Most private mortgages range from just a few months to a few years.
Let’s consider a $1 million house that a homeowner is looking to get a private mortgage for. The homeowner had been denied a renewal at a bank, but their previous mortgage payments have reduced their mortgage to $600,000. This reflects the mortgage portfolio of Atrium, a mortgage investment company (MIC), which has an average loan-to-value ratio of 60%.
MCAN, another MIC, has an average mortgage term of just over one year. Let’s say that the homeowner is only looking for a private mortgage with a one year term. After fixing up their credit, the homeowner is planning on switching back to a bank. How much will a private mortgage cost?
With a private mortgage with a rate of 6%, your total interest cost would be approximately $35,268 over one year. Your monthly payment will be around $3,839. You can also expect to pay around $12,000 in private lender fees at a fee rate of 2%.
|Mortgage Rate||Total Interest Cost||Total Cost||Monthly Payment|
|6% + 2% Fees||$35,268||$47,268||$3,839|
In Ontario, private mortgage lenders doing business through mortgage brokers do not need to be licensed. Private lenders in Ontario who provide mortgages directly to the public must be licensed by the Financial Services Commission of Ontario (FSCO) and must display their FSCO license number on all materials and ads. They cannot advertise their services in Ontario. One way to get access to private mortgage lenders in Ontario is by going through a licensed mortgage brokerage. Since they are not regulated, they are able to offer a wider range of mortgages and are more flexible in their lending requirements.
Since you do not need to have a license to be a private lender in Ontario, all you need to become a private lender is money to invest.
Investing in private mortgages can be easy as purchasing the stock of a Mortgage Investment Corporation. You can also join a syndicate or directly lend to individuals looking to borrow.
Lawyers in Ontario will have to complete Form 9D and Form 9E if they represent a client in a private mortgage transaction. These forms document written instructions by the clients in the mortgage transaction.
Although Forms 9D and 9E are required if the lender is a private lender, these forms are not required if the lender is a bank, licensed insurer, trust corporation, or pension fund.
Lawyers can become a private lender for their clients, however, they cannot represent their client in that mortgage transaction.
Private mortgages have seen considerable growth over the past few years. In 2018 and 2019, the number of mortgage registrations by private lenders increased by double digits, while the Big Banks saw a decrease in the growth of mortgage registrations. Even though this growth reversed in 2021, the prevalence of private mortgage lenders in major urban areas such as Toronto and Ottawa have continued to increase.
|Big 6 Banks||-13.0%||-9.4%||10.1%||13.8%|